And, truth be told, the industry recognizes this need. Here’s the dilemma. While it may be in the 401k plan sponsor’s best interest to encourage ex-employees to take their retirement assetswith them when they go out the door, in practice, these former employees often find themselves out of thefrying pan and into the fire.Currently, IRA advisers are not required to be fiduciaries. Coincidentally, the DOL does not require all 401k advisers to act as fiduciaries. The difference in the 401k environment, however, is regardless of the status of the adviser, the Plan Sponsor must act as a fiduciary. Therefore, ex-employees who leave their assets in a 401k plan are guaranteed of having at least one fiduciary looking out for them. On the other hand, those left to fend for their IRAs themselves do not have that luxury. Nevin Adams, Editor-in-Chief at PlanSponsor Magazine, expresses concern for those investors who leave their 401k plans when he says, “In my experience, most are sheep heading for the (financial) slaughter.”
A recent investor survey may confirm this feeling of doom on the part of Adams. According to J.D. Power and Associates (“Clients confused about standards – and don’t really care: Report,” InvestmentNews, June 16, 2011), most investors can’t tell the difference between the fiduciary standard and the suitability standard. Worse, the report reveals many don’t care, either. If the sheep don’t care about getting slaughtered, then it doesn’t take much effort for the wolves to dine regularly.
To allow Americans to reach their retirement goals advisers to IRA owners must be held to a fiduciary standard. Until now IRA owners were at the mercy of the financial salesperson, who reported to their financial institution not the IRA owner.
Please comment or call to discuss this important issue.
- Is Your Company 401(k) Plan A Benefit? (401kplanadvisors.com)
- ERISA §3(38) Fiduciaries and the Flavor of the Month (401kplanadvisors.com)
- Proposed Changes to 401k Plans: Know What is at Stake! (prweb.com)